Pure-play sales growth dramatically slows as the majors catch up: Why the online retail honeymoon is over

Pure-play online retailers are kissing super-sized growth goodbye, as sales expansion slows to a more normal pace.

However, multi-channel retailers (‘omni-channel’, in the industry jargon) can expect their online sales growth to speed up.

That’s the conclusion, supported by industry experts, of a Commonwealth Bank analysis of $1.3 billion in credit card transactions. It found online sales growth at retailers with both online and bricks-and-mortar offerings grew 22% in the year to January, while online sales at online-only retailers grew just 13%.

This follows dramatic growth for pure-play online retailers, which saw their sales increase 107% in the year to October 2011. The year to July 2012, however, saw sales growth of only 34%, slowing to 23% in the year to February 2013, 21% in the year to July 2013, and now, 13% in the year to Jan 2014.

“The honeymoon is now well and truly over” for pure-play online retailers, says Deals Direct cofounder and now chairman of the National Online Retailers Association Paul Greenberg.

Consumers are rewarding retailers with multiple touch-points, and increasingly, this means the big retailers like Myer, David Jones, Woolworths and Coles are winning.

For the first time, more than 50% of the online spending analysed by the Commonwealth Bank is being done at multi-channel retailers, after “an extended period of catch-up”, according to CBA analyst Andrew McLennan.

And while bricks-and-mortar retailers have until recently been growing from a lower base, CBA is confident their rapid online sales growth will continue.

This is because the primary way they’re growing is by gaining new customers, and their customer conversion processes “remain in their infancy compared to pure play online retail customer growth”. This suggests that their domination of the online space will continue “over the medium term”, the bank suggests.

This is also helped by the Australian dollar, whose fall has halted the growing numbers of Australians shopping at offshore online retailers. Spending at such retailers fell by 3% in the 12 months to January, according to CBA’s data.

Traditional retailers particularly dominate some online sectors. These include food and liquor sales, fashion, and cosmetics. Group buying, unsurprisingly, remains entirely the domain of pure-play online retailers, while such retailers control 42% of the books, gaming and media online sales.

Greenberg says this shows customers like engaging with multiple channels.

“Pure-play is a one-channel-to-market model. There are customers who love that, but increasingly, larger retailers are giving you the choice.

“Of course online retailing has promise. But where physical retailers have a significant advantage is around the delivery piece. By getting customers to pay and secure a product online, and then collect it in store, you can avoid that delivery cost and delay. Sure a bricks-and-mortar store is an expensive business to run, but it does offer some advantages.”

Greenberg says online retailers need to consider new ways to engage with customers.

“Look at businesses like Shoes of Prey – they’ve opened up a concept store in David Jones. Or OzSale, which has warehouse stores four times a year as well as pop-up stores in shopping centers.

“I’m concerned by any retailer who’s obsessed with channel. You have to listen to the customers, who are saying they like multiple touch-points. The retailers who are responding to this proactively will prosper.”